Peak oil , the end of the oil age is coming?

A peak oil story from Examiner – The end of the oil age is coming

Chuck Taylor has held senior management positions with Nabisco Brands, Ryder System Inc., Burlington Northern/Santa Fe Railroad, Mercer Management Consultants, Tri Valley Growers, American National Can, ServiceCraft Logistics, and Norbridge Inc., and recently founded an organization called Awake! He founded Awake! out of concern the supply chain profession is not informed about the critical changes facing it with the end of cheap oil. One goal is to raise awareness so supply chain professionals will understand the stakes and take an active role in shaping energy policy.

Growing Up in the Business

You might say Chuck Taylor grew up in the transportation business. At age sixteen, he went to work for the Missouri-Kansas-Texas Railroad, also known as the Katy, where his dad was the Yard Master. Having grown up in Texas, and having relatives in the oil business, Taylor was also naturally interested in the oil industry.

In 1973, Taylor was working for a small trucking company in Houston — a bulk carrier that did a lot of work for the petrochemical oil industries. 1973 is significant because it also marked the second Arab Oil Embargo against the United States, which came with an announcement that OPEC would raise the posted price of oil by 70% and cut production by 5%, followed by more cuts, over time, in 5% increments until their economic and political objectives were met. “It changed everything,” Taylor said, “I saw the dramatic impact on transportation and distribution firsthand, and quickly understood the relationship between cheap energy and our logistics system.”

In the 1980s, Chuck Taylor worked for Ryder, who, at the time, had secured a contract with Toyota in Georgetown, Kentucky. Taylor says he got in on the ground floor of the lean movement and immersed himself the Toyota production system, especially as it relates to logistics. In the mid-90s, he added to his practical experience while doing Six Sigma work for General Electric. “So, lean Six Sigma has always been a big part of my repertoire and tool chest,” Taylor said. For the past five years, he has dedicated himself to making speeches, writing article and posting blogs on the subject of oil’s impact on supply chain. In fact, he’s a regular blogger with DC Velocity.

98% of Today’s Supply Chains Run on Oil and There is No Substitute

In 2004, a time when oil prices rose to exorbitant levels, Chuck Taylor attended the CSCMP conference. “There were 280 breakout sessions,” Chuck said, “and there wasn’t one discussion about energy and its impact on transportation.” From that point forward, Chuck Taylor’s career revolved around his knowledge of oil’s impact on supply chain. Having recently sold a third-party logistics company in California, Chuck moved back to Texas, and with a little extra time on his hands, he decided to get serious about communicating the gravity of the oil situation to the supply chain industry. He wanted to let people know that aren’t going to be any big oil discoveries coming online like there were in the 70s and 80s. “It’s going to be a struggle for the oil industry to meet world demand going forward,” he said, ” and at some point, probably in the near future, we are going reach a point where world oil production is going to peak and start down the back-slide.”

To be perfectly clear, we’re not going to run out of oil, what Chuck Taylor is referring to, is the concept of “peak oil,” the point when maximum global petroleum extraction is reached, after which the rate of production enters decline. According to Taylor, Dr. King Hubbert, a geoscientist with Shell, created the models behind peak oil in 1956 to accurately predict that the United States’ oil production would peak between 1965 and 1970. As it turns out, Hubbert was correct.

Chuck Taylor believes supply chain professionals really need to start thinking about the impact of oil on their supply chains, because there is no readily available substitute, and 98% of today’s supply chains run on oil. “You’re not going to run trucks on electricity or wind power or any of these things that we hear so much hype about,” Taylor says, “You are just not going do it, at least for a while.”

Get Ready for the Inevitable, the End of the Oil Age is Coming

Because the recession has lowered oil prices, Taylor is concerned that people are taking their eye off the ball. At present economic growth is still slow, but when thing begin to pick up, oil prices will, without a doubt, begin to rise. Chuck Taylor also says, people in China, India, Brazil, Russia and Middle Eastern countries want a more westernized lifestyle, which means their demand will rise as well. The upshot — Taylor feels oil will hit $100 a barrel by 2011 — which means we will either be in a position where we have conserved and cut back enough, or we will be headed for another recession.

Taylor’s message to supply chain professionals is, “Get ready for the inevitable… the end of the oil age is coming.” His advice is to get top management onboard, and to look at everything in your supply chain including raw materials, manufacturing, packaging, the size and scope of your supply network, the number of SKUs, modes of transportation — everything — because everything you do will be impacted by the end of “cheap oil.”

The Forced Future of Lean

Chuck Taylor said he was “sold” on the concept of lean while working for Ryder whose client at the time was Toyota. Lean, Taylor says is more than just a set of tools, it is a way of life. Too many companies, he says, are focused on the tools. Six Sigma tools are good, but “define, measure, analyze, improve, and control” are essentially common sense solutions that should be applied to every company. What makes the Toyota production system a standout is that it is treated as a way of doing business — it is not just the tools, it is a philosophy.

Taylor posed some interesting questions, and a few solutions. For example, how lean are 12,000 mile supply chains? A true lean system, he says, gets rid of as much transportation as possible, so when you think your global supply chain is lean, think again. Transportation professionals might beg to differ, but Chuck Taylor says, in a true lean system, their entire function is viewed as waste.

One area where Taylor has had particular success in cutting waste from supply chains is in the area of reducing SKUs. Eliminating redundant SKUs a simple and sound place to start, he says. It not only eliminates waste, it is essential to a lean supply chain.

Back to the subject of oil availability and oil prices, Taylor sees green initiatives and legislation as a step in the right direction. It forces conservation in a sense, but as the oil situation becomes more grave, Taylor fears a geopolitical event — some sort of failure in the oil infrastructure with the potential to cause a liquid fuel emergency similar to that of the 1970s, although far more permanent.

In 2007, for example, Mexico was the third-largest supplier of crude imports to the American market, behind Canada and Saudi Arabia. Internally, Petróleos Mexicanos, or Pemex, Mexico’s state-owned petroleum company, was terribly neglected and profits were continually siphoned off to pay bureaucrat’s salaries and fund state-supported projects. Now, having injected nitrogen into its oil fields to increase production by artificially pressurizing the reservoir, which worked for a time, production is in decline — primarily due to damage inflicted by the nitrogen injections. At stake is the Mexican economy and the supply of oil to the United States. And, according to Chuck Taylor, in the Joint Chiefs of Staff’s annual report, Mexico could soon be added to the list of failed states.

Even without Mexico’s struggles, and the instability in regions like the Middle East, the threat of a liquid fuel emergency like we had in the 1970s is real. At the time, there simply wasn’t enough oil to run the country, a scenario that could easily be repeated. “Supply chains that are prepared will have more of a chance to continue operating,” Chuck Taylor says, “Those that are not will just be outta luck.”

As early as 2005, Chuck Taylor has been saying the only thing that would cause oil prices to go down is a worldwide recession or depression, and basically, that’s what happened. The recession has given us a little “breathing room,” to use our lean, Six Sigma tools to reduce waste by making simple changes, such as re-examining sourcing practices, and consolidating shipments and reducing empty miles — basically, taking a serious look every link in the supply chain with an eye toward “lean.”

In the future, Chuck Taylor says, it’s not inconceivable that, in the event of another liquid fuel emergency, we’ll see speed limits dropped from 70 miles per hour to 55 miles per hour just as we did in 1973. Companies have to think ahead to what that could mean to their just-in-time systems. He also sees the distinct possibility of restrictions on operating hours for trucks within certain geographic areas, such as Los Angeles. Again, companies need to look ahead to what that might mean in terms of DCs operating overnight, and how distribution would be accomplished after normal business hours. In the event of a liquid fuel emergency, and in light of declining oil production, first responders, the military, and distributors of food and pharmaceuticals would receive top priority, which leaves Chuck Taylor wondering what might happen to less essential-to-society type of activities. Are we looking at a world without NASCAR for example? Only time will tell.

In closing, Chuck Taylor said, ” It’s the end of the world as we know it, but it’s not necessarily the end of the world.”

News Source: Examiner.com

Tags:  oil age, peak oil